The Pound Sterling (GBP) weakened on Thursday, trading around 1.2680 against the US Dollar (USD) following the Bank of England’s (BoE) policy meeting. While the BoE held interest rates steady at 5.25%, the accompanying statement hinted at a potential rate cut in August, sparking the GBP’s decline.

BoE Decision and Market Reactions

The BoE’s decision to maintain interest rates was widely anticipated, with the market consensus aligning with the 7-2 vote split in favor of a hold. However, the statement’s reference to the August decision and the assessment of inflation risks raised the possibility of a rate cut in the near future.

Despite the UK’s Consumer Price Index (CPI) falling to the BoE’s 2.0% target in May, concerns about persistent inflation in other sectors, particularly services, are keeping policymakers cautious. Market expectations for a rate cut have now shifted to August, with a reduced probability of a July move.

Factors Influencing Sterling’s Trajectory

• BoE’s Inflation Forecast: The BoE’s projection of rising inflation in H2 could limit the Pound’s downside potential.
• Sticky Service Sector Inflation: The persistence of high inflation in the service sector remains a concern for the BoE and could delay potential rate cuts.
• Global Central Bank Actions: The Swiss National Bank’s (SNB) recent rate cut adds to the complex global monetary policy landscape, although its impact on the BoE’s decisions remains limited.

Technical Analysis: GBP/USD Loses Direction After Breakdown

The GBP/USD pair broke below the lower trendline of a rising channel, signaling a potential trend reversal. However, the lack of follow-through after the breakdown suggests uncertainty in the short-term outlook.

A decisive break below 1.2657 could confirm a shift to a bearish trend, targeting 1.2601. Conversely, a move above the 100-day Simple Moving Average (SMA) at 1.2740 could indicate a resumption of the previous upward bias, aiming for 1.2775.